Profits up, production volume down for Wells Fargo and JP Morgan in 1Q 23

fargo wells and JPMorgan Chasethe nation’s top deposit lenders, saw home loans production volume declined further in the first three months of 2023, signaling another difficult quarter for the mortgage industry.

fargo Wells, the fourth largest mortgage lender in the US by volume, originated $6.6 billion in mortgages in the first quarter of 2023, which was 55% less quarter-over-quarter and 83% compared to $37.9 billion in the first quarter of 2022. Refinancing increased to 16% of the backlog in Q1 2023 compared to 13% in Q4 2022, but still lower than 56% in Q1 2022.

The drop in production volume was widely anticipated as Wells Fargo announced its plan to exit correspondent lending and reduce its presence in the retail mortgage business. at the beginning of this year.

About $5.6 billion in origin came from the retail channel in the first quarter, down 32% from $8.2 billion in the prior quarter. Production volume in the retail channel fell 77% from $24.1 billion over the same period in 2022.

In January, Wells Fargo stopped accepting applications from the corresponding channel. In turn, the production volume in the correspondent channel dropped to $1 billion in the first quarter of 2023, down from $6.4 billion in the fourth quarter of 2022 and $13.8 billion in the first quarter of 2022.

“Our strategy includes expanding our existing special purpose credit program investment to include purchase loans, investing an additional $100 million to advance racial equity and homeownership, and deploying additional mortgage consultants to local minorities.” mike santomassimoWells Fargo’s chief financial officer, reiterated the analyst on his earnings call on Friday.

JP Morgan, the nation’s fifth-largest mortgage lender, reported origination volume of $5.7 billion in the first quarter of 2023, a 15% decrease from $6.7 billion in the prior quarter, and a 77% drop from $24.7 billion in Q4 2021.

JP Morgan Chase has also been reducing its presence in the correspondent channel, which it uses to finance a high volume of jumbo mortgages. While corresponding channel origination was flat from Q4 2022 to Q1 2023 at $2.1bn, it was down 78% from $9.6bn in Q1 2022.

Bank Home Loan Struggles

While JP Morgan Chase’s net home loan income rose 23% quarter-over-quarter to $720 million in the first quarter of 2023, it was down 38% from $1.17 billion in the same quarter in 2021.

“Home loan income is down 38% year-over-year. largely driven by lower net interest income due to tighter credit spreads and lower production revenue,” Jeremy Barnum, chief financial officer at JP Morgan Chase & Co., told analysts on Friday.

Wells Fargo reported $863 million in revenue from its home lending business in the first quarter of 2023. That’s 10% more than the $786 million in the fourth quarter, but 42% less than the $1.49 billion in the first quarter of 2022.

“Our mortgage loan revenues were down 42% from the prior year, driven by lower mortgage origination, including a significant decline in the matching channel and lower revenues from the re-securitization of loans purchased from securitization pools,” Charlie Scharf, CEO and chairman of Wells Fargo, told analysts.

The bank, which reduced its workforce in the first quarter, expects staff levels to continue to decline due to strategic changes announced in January, Scharf added.

Wells Fargo mortgage banking non-interest income reached $232 million in the first quarter of 2023, an increase of $79 million in the prior quarter and a decrease of $693 million in the same period of 2022.

With the drop in originations, Wells Fargo Mortgage Servicing Rights (MSR) (book value (end of period)) decreased 5%, falling to $8.82 billion in the first quarter of 2023 from $9.3 billion in the quarter former. Compared to the first quarter of 2022, the value of MSR increased 5% from $8.5 billion. Net service revenue decreased 11% quarter-over-quarter to $84 million and 28% year-over-year.

JP Morgan’s mortgage servicing rights also fell to $7.7 billion in the first quarter of 2023 from $8 billion in the fourth quarter of 2022, but increased from $7.3 billion in the first quarter of 2022. Revenue Net mortgage servicing costs increased to $148 million in the first quarter of 2023, up from $47 million in the fourth quarter of 2022 but down from $245 million in the first quarter of 2022.

General extraordinary profits for both banks

Overall, Wells Fargo and JP Morgan reported bumper first-quarter profits amid smaller bank failures.

Bank profits boosted by rising interest rates rates and reflected consumer perceptions that larger institutions are more stable after the recent collapse of Silicon Valley Bank and signature bank.

Wells Fargo profit rose 58% to $5 billion quarter-over-quarter and was up 32% from a year earlier.

Rising interest rates boosted Wells Fargo’s earnings as the loan book grew, buoyed by gains in personal loans and higher credit card balances.

JP Morgan posted profits up 15% to $12.6 billion quarter-over-quarter. The largest bank in the country reported a 52% increase in profits compared to the previous year.

The bank experienced a 2% increase in total deposits, reaching $2.38 trillion in the first quarter. That’s a 7% decrease from $2.56 trillion a year ago.

“We had a rough patch in March, but things are looking better now,” Barnum said.

“The banking situation is different from 2008, as it has involved far fewer financial players and fewer issues that need to be resolved. But financial conditions are likely to tighten as lenders become more conservative, and we don’t know if this will reduce consumer spending.” jamie dimondpresident and CEO, said in a statement.

“Eventually we are going to have a recession, but that may be delayed a bit,” he said.

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